The case began with lawsuits filed in June 2005 and February 2006 by members of the Prescription Access Litigation (PAL) coalition, alleging that First Databank and McKesson carried out an illegal scheme from 2002 to 2005 to raise the price of prescription drugs.

The lawsuits claim that in 2002, McKesson and First Databank began arbitrarily raising the WAC-to-AWP spread to 25 percent for more than 400 brand-name drugs. Those drugs previously had only 20 percent WAC-to-AWP spread.

The suits further allege that McKesson used this “5 percent scheme” to provide a benefit to its large pharmaceutical retail-chain clients, who would then earn an extra amount with each prescription. They allege that First Databank went along with the scheme to ease the burden of establishing accurate spreads and to curry favor with McKesson so that McKesson would use First Databank as the source of drug prices for its customers. As a result of this arbitrary increase, the suits claim, millions of consumers have had to paid drug prices that were unnecessarily inflated.

The first case was filed in June 2005 in the U.S. District Court for the District of Massachusetts. On October 6, 2006, a settlement between the plaintiffs and First Databank was announced. First Databank agreed to roll back the WAC-to-AWP spread from 25 percent to 20 percent for more than 8,000 national drug codes (NDCs), representing 95 percent of retail branded drug sales.

First Databank also agreed to cease publishing AWP data within two years of the court’s approval of the settlement, as long as no competitor continues publishing similar AWP data. On Nov. 14, 2006, the court granted preliminary approval to the settlement with First Databank.

On May 22, 2007, the plaintiffs announced that they had reached a similar settlement with Medi-Span, a competitor to First Databank in the publishing of AWPs. A hearing to evaluate whether the settlement was fair, reasonable, and adequate was held on Jan. 22, 2008. At the hearing, the plaintiffs, First Databank, and Medi-Span presented information on why the settlements should be approved. Also, several organizations, including NACDS, filed friend-of-the-court briefs arguing against the court’s approval of the settlements.

The judge refused to grant final approval to the settlement, citing concerns about the proposed rollback applying to drugs that were not part of the original complaint and about the absence of monetary relief for class members, as well as her unwillingness to order First Databank and Medi-Span to cease the publication of AWPs within two years of the settlement becoming final.

On March 19, 2008, the plaintiffs and First Databank submitted an amended settlement, addressing the concerns raised by the court at the Jan. 22 final approval hearing. Saris approved the amended settlement March 17.

NACDS and the Food Marketing Institute (FMI) said the legal brief they filed to counter the proposed settlements included an economic analysis detailing the numerous ways in which the cost savings and impact of the settlements were based on "inaccurate" economic analysis and would unfairly hurt retail pharmacies.

The AWP reductions will cut Medicaid reimbursement by about $68 million each year. In addition, pharmacies that are unable to renegotiate their private-sector reimbursement contracts will face a net 4 percent reduction in AWP-based reimbursement.

“NACDS opposed the settlements, and we appreciate that the court prevented the settlements from moving forward initially,” said NACDS President and CEO Steven C. Anderson, IOM, CAE. “However, these new, approved settlements unduly and inappropriately penalize pharmacies, as well as patients if pharmacies are forced to close or alter their business practices.”

“We are currently engaging with our members to determine next steps regarding the ruling and will determine the course of action that best represents pharmacy for the benefit of the patients,” Anderson said. The attorney for the plaintiffs could not be reached for comment.